Break-even calculator for shops

Your break-even point is the amount you have to sell before the shop makes a cent of profit. Below it, you lose money. Above it, every extra sale adds to your profit.

It matters because fixed costs arrive whether you sell or not. Rent is due on the first. The power bill comes. Wages are paid. Break-even turns that pile of bills into a target you can check against the till each day.

Gross margin is the share of each sale you keep after paying for the goods. At a 25% margin you keep 25 cents of every dollar sold, and the other 75 cents goes back out to buy replacement stock. Only that 25 cents is available to pay the rent. So to cover $3,000 of fixed costs, you need $3,000 ÷ 0.25 = $12,000 in sales.

If you do not know your margin, enter an average cost and price instead. Margin is (price - cost) ÷ price, so a typical item that costs $6 and sells for $8 is a 25% margin. The calculator also shows how many items that is: $3,000 ÷ $2 profit each = 1,500 items a month. Use the markup and margin calculator if you mix the two up, since using markup here gives the wrong answer.

Fixed costs stay the same when sales go up or down. Add them up for a normal month.

• Rent or lease payments.
• Wages for staff, and what you pay yourself if you take a regular amount.
• Electricity, water, internet and phone.
• Insurance, licences and security.
• Loan or credit payments.
• Software, accounting and bank fees you pay every month.

Do not include the cost of the goods you sell. That is already inside your margin. Spoilage, theft and damage are different: they are losses on top of margin, so if they are big, use a margin that has them taken out. A yearly cost, like a licence, should be divided by 12 first.

A monthly number is hard to act on. The calculator converts it using 52 weeks in a year, so a month is 52 ÷ 12, or about 4.33 weeks. It then splits the week across the days you open.

1. Monthly

   $3,000 fixed costs ÷ 25% margin = $12,000 a month.

2. Weekly

   $12,000 × 12 ÷ 52 = $2,769.23 a week.

3. Daily

   Open 6 days a week: $2,769.23 ÷ 6 = $461.54 a day.

Now your day has a target. If a quiet Tuesday brings in $300, you know you are about $160 behind it, and that you need a stronger day to catch up. Check the sales total at close, using your end-of-day cash-up or sales report.

There are only two levers: cut fixed costs, or raise margin. Try changing each in the calculator and watch the result move.

• Raise margin. Moving from 25% to 30% drops break-even from $12,000 to $10,000 a month. That could be a price rise on fast sellers, a better supplier price, or less discounting. The discount calculator shows how fast discounts erode margin.
• Cut a fixed cost. Dropping $300 from the monthly bills at 25% margin lowers break-even by $1,200 a month.
• Open fewer low-sales hours. If a day never covers its share, closing it saves the costs that vary with opening, such as power and wages for that day.

A higher margin helps more than it looks, because each percentage point comes off the whole month. See gross profit for shop owners for how to work out your real margin from sales and stock.

• Average margin hides a mix. A shop selling drinks at 40% and phone cards at 8% has a blended margin that moves with what sells. Use a margin from the last month's actual sales.
• It is not your pay. Break-even covers costs. If you want to take $1,000 a month home, add it to fixed costs and recalculate.
• Taxes. Use sales and costs before sales tax such as GCT or VAT, which belong to the tax authority. The GCT calculator and VAT calculator strip it out.
• Seasons. One month's cost against another month's sales will mislead you. Compare like with like.

Shopkeepa's sales and profit reports are built to show what you sold and earned over a period, so you can compare it with your break-even target. See sales and profit reports.